ERISA, the Employee Retirement Income Security Act of 1974, sets federal standards for employer-sponsored benefit plans in the private sector. It started with pensions, but it reaches just as far into health and welfare plans: medical, dental, vision, life, disability and more. The Department of Labor’s Employee Benefits Security Administration oversees about 2.8 million health plans and 521,000 other welfare plans, covering more than 155 million workers, retirees and their families.
Knowing whether your plans are subject to ERISA tells you which documents, disclosures, filings and fiduciary duties apply. Here is how to tell.
Who Is Subject to ERISA for Health and Welfare Plans?
ERISA applies to most private-sector employers that offer health and welfare benefits to employees, regardless of size. Here is a quick breakdown.
Health and Welfare Plans Subject to ERISA
- Employer-sponsored medical plans, insured or self-funded
- Dental and vision plans
- Prescription drug coverage
- Health flexible spending accounts (FSAs)
- Health reimbursement arrangements (HRAs)
- Group life insurance
- Short-term and long-term disability insurance
- Accidental death and dismemberment (AD&D) insurance
- Employee assistance programs (EAPs) that provide counseling
- Wellness programs that provide medical care, such as biometric screenings
Health and Welfare Plans Exempt from ERISA
- Governmental plans (federal, state and local)
- Church plans, unless the plan elects ERISA coverage
- Plans maintained solely to comply with workers’ compensation, unemployment compensation or disability insurance laws
- Plans maintained outside the United States primarily for nonresident aliens
- Unfunded excess benefit plans
- Payroll practices, such as paying regular wages from general assets during sick leave or vacation
- Voluntary insurance programs that meet the Department of Labor’s safe harbor
- Plans that cover only business owners and their spouses, with no employees
To decide whether a plan is covered, ask whether it is sponsored by a private employer or union, involves an ongoing administrative scheme, and provides welfare benefits to employees.
What Is ERISA, and How Does It Apply to Health Plans?
ERISA is the federal law that sets minimum standards for employer-sponsored benefit plans. It does not require an employer to offer benefits. It governs how a plan is run once the employer does.
ERISA and Health & Welfare Plans
ERISA defines a “welfare plan” as a plan, fund or program established or maintained by an employer or employee organization, through insurance or otherwise, to provide participants or their beneficiaries with:
- Medical, surgical or hospital care or benefits
- Benefits in the event of sickness, accident, disability, death or unemployment
- Vacation benefits
- Apprenticeship or other training programs
- Day care centers
- Scholarship funds
- Prepaid legal services
- Other benefits described in section 302(c) of the Labor Management Relations Act, such as holiday and severance benefits
Health and medical benefits are by far the largest category. Retirement plans, such as 401(k) and pension plans, are the other kind of ERISA plan, called pension plans, and follow their own additional rules.
Key ERISA Provisions for Health and Welfare Plans
- Plan document. Every plan must be maintained under a written document that describes benefits, eligibility, funding, claims procedures and how the plan is amended.
- Summary plan description (SPD). Participants must receive a plain-language summary of the plan, generally within 90 days of becoming covered.
- Claims procedures. Plans must follow the Department of Labor’s claims and appeals rules, including deadlines for decisions and written explanations of denials.
- Fiduciary duties. Those who manage the plan must act solely in the interest of participants and beneficiaries.
- Reporting. Many plans must file an annual Form 5500 with the Department of Labor.
- Continuation coverage. Through COBRA, group health plans of employers with 20 or more employees in the prior year must offer continuation coverage after qualifying events such as job loss.
ERISA Amendments Affecting Health Plans
- COBRA (1985): temporary continuation of group health coverage that would otherwise end
- HIPAA (1996): protection from discrimination based on health status and better portability of coverage
- Newborns’ and Mothers’ Health Protection Act (1996): minimum hospital stays after childbirth
- Mental Health Parity Act (1996) and Mental Health Parity and Addiction Equity Act (2008): parity between mental health and substance use disorder benefits and medical and surgical benefits
- Women’s Health and Cancer Rights Act (1998): coverage of reconstructive surgery after a mastectomy
- Affordable Care Act (2010): preventive care without cost sharing, no lifetime or annual dollar limits on essential health benefits, and dependent coverage to age 26, among other protections
What Is the Purpose of ERISA for Health and Welfare Plans?
ERISA protects employees and their families who depend on employer-sponsored health plans. It does that in five main ways.
Core Protective Functions for Health and Welfare Plans
- Transparency and disclosure. Participants get SPDs and other notices that explain what the plan covers, what it excludes and how to use it.
- Fiduciary standards. People who run the plan must put participants’ interests first, act prudently and follow the plan document.
- Uniform national standards. ERISA preempts many state laws that relate to employee benefit plans, so a multi-state employer can run one plan under one set of federal rules. State insurance laws still apply to insured plans.
- Enforcement. Participants can sue to recover benefits and to address breaches of fiduciary duty, and the Department of Labor can investigate and assess penalties.
- Fair claims handling. Required claims and appeals procedures guard against arbitrary denials.
Which Employers and Plans Does ERISA Cover?
ERISA applies to any employee benefit plan established or maintained by an employer engaged in commerce, by an employee organization such as a union, or by both, unless an exemption applies.
Employers Subject to ERISA Health and Welfare Plan Requirements
- Private-sector employers. This includes for-profit corporations of every size, LLCs, partnerships, sole proprietorships with employees, and private nonprofits. There is no small-employer exemption: a business that covers even one employee under a health plan sponsors an ERISA plan.
- Employers offering voluntary benefits. If the employer contributes, endorses the program or does more than collect and remit premiums, voluntary coverage is usually an ERISA plan.
- Multiemployer plan sponsors. Plans maintained under collective bargaining agreements with more than one employer are ERISA plans.
- Professional employer organizations (PEOs). When a PEO sponsors a health plan for its client employers’ workers, the arrangement is generally subject to ERISA, often as a multiple employer welfare arrangement with additional state and federal rules.
Health and Welfare Plans Subject to ERISA
- Medical plans: fully insured, level-funded and self-funded
- Specialized coverage: dental, vision, prescription drug and hearing benefits
- Accounts and arrangements: health FSAs and HRAs. Health savings accounts (HSAs) generally are not ERISA plans, though the high-deductible health plan paired with them is.
- Insurance and income protection: group life, AD&D, short-term disability, long-term disability and employer-sponsored long-term care
- Wellness and support programs: EAPs that provide counseling, disease management, and wellness or smoking cessation programs that provide medical care
- Other benefits: severance plans that require ongoing administration and retiree health plans
Key Factors That Trigger ERISA Coverage for Health Plans
- Employer involvement. An employer or employee organization establishes or maintains the plan.
- Ongoing administration. The plan needs an ongoing administrative scheme, such as eligibility decisions, enrollment and claims.
- Benefit purpose. The plan provides one of the welfare benefits listed in ERISA.
- Covered sponsor. The sponsor is not a government or a church plan sponsor that is exempt, and at least one participant is an employee.
Who Is Exempt from ERISA Health and Welfare Plan Requirements?
ERISA section 4(b) lists five kinds of plans that are outside Title I. Department of Labor regulations add several arrangements that are not “plans” at all.
Exempt Employers
- Government entities. Plans established or maintained by federal, state or local governments or their agencies and instrumentalities are governmental plans. That includes public school systems, state universities and government hospitals. Some plans of Indian tribal governments also qualify.
- Churches. Plans established and maintained by a tax-exempt church or convention or association of churches for its employees are church plans. Plans of certain church-controlled or church-affiliated organizations, such as some religious hospitals and schools, can also qualify if they meet the statutory definition. A church plan can elect into ERISA under Internal Revenue Code section 410(d) by attaching a statement to its annual return or a determination letter request. The election is irrevocable.
- Plans abroad. A plan maintained outside the United States primarily for people who are substantially all nonresident aliens is exempt. A foreign company’s plan for its U.S. workforce is not.
Exempt Health and Welfare Plans
- Plans maintained solely to comply with state law. Plans kept only to satisfy workers’ compensation, unemployment compensation or disability insurance laws are exempt. A disability plan that pays more than the state law requires is not maintained solely for compliance and is generally covered.
- Governmental plans, such as the Federal Employees Health Benefits Program and state and municipal employee plans. TRICARE, the military health program, is a federal program and not an employer plan under ERISA.
- Church plans that have not elected ERISA coverage.
- Unfunded excess benefit plans. These are retirement plans that pay benefits above Internal Revenue Code limits. They matter for executive pay, not health benefits.
- Payroll practices. Paying normal wages from the employer’s general assets during sick leave, vacation, holidays, jury duty or military leave is not a welfare plan.
- Owner-only plans. A plan with no employees as participants is not an ERISA plan. A business owner and spouse are not employees of a business they wholly own, and partners and their spouses are not employees of the partnership. Add one common-law employee and the plan is covered.
- Individual policies. Coverage people buy on their own, without employer involvement, is not an employer plan. Individual policies purchased through an individual coverage HRA can stay outside ERISA if the regulation’s conditions are met, though the HRA itself is an ERISA plan.
The “Safe Harbor” Exemption for Certain Group Health Insurance Programs
A group or group-type insurance program offered by an insurer is not an ERISA plan when all four conditions are met:
- The employer makes no contributions.
- Participation is completely voluntary.
- The employer’s only role, without endorsing the program, is to let the insurer publicize it, collect premiums through payroll deduction and send them to the insurer.
- The employer receives no consideration other than reasonable compensation, excluding profit, for the payroll deduction work.
Endorsement is where most employers lose the safe harbor. Paying any part of the premium, choosing the carrier and presenting the coverage as part of the company’s benefits package, or folding it into the company’s wrap document can all make it an ERISA plan.
Public Health Programs
Government health programs are not employer-sponsored plans and are not subject to ERISA:
- Medicare
- Medicaid
- Children’s Health Insurance Program (CHIP)
- State high-risk pools
- Coverage bought through the ACA Marketplace
What Are the Most Common ERISA Compliance Challenges?
These are the gaps that most often lead to Department of Labor findings, penalties and participant lawsuits.
Documentation and Disclosure Challenges
- Missing plan documents. Many employers rely on an insurance certificate as the plan document. A certificate usually lacks required ERISA terms, such as the plan administrator, funding and amendment procedures. A wrap document is the common fix.
- Outdated SPDs. SPDs fall behind plan changes, leave out required ERISA content or are not distributed on time.
- Summary of Benefits and Coverage (SBC) errors. The SBC does not match the plan, is not provided at enrollment or is not updated when terms change.
Reporting and Filing Requirements
- Form 5500. Form 5500 is generally due by the last day of the seventh month after the plan year ends, July 31 for calendar-year plans, with an extension available on Form 5558. Welfare plans with fewer than 100 participants at the start of the plan year that are fully insured, unfunded or a combination are generally exempt. Self-funded plans that pay benefits from a trust, and plans with 100 or more participants, generally must file.
- COBRA administration. Common errors include missed notice deadlines, incomplete notices, incorrect premiums and failing to offer coverage to every qualified beneficiary.
Fiduciary Responsibility Issues
- Weak oversight of service providers. Sponsors fail to vet TPAs, PBMs and carriers, monitor their performance and fees, or document the process.
- Conflicts of interest. Decisions that favor the company or a related party over participants can breach fiduciary duty.
- Mishandled plan assets. Employee contributions are plan assets. Holding them too long or mixing them with company funds is a common violation.
Claims Administration Problems
- Noncompliant claims procedures. Missed decision deadlines, vague denial letters, missing appeal rights and mishandled appeals.
- Inconsistent decisions. Applying plan terms differently to similar participants invites fiduciary claims.
Plan Design and Operation Issues
- ACA compliance. Applicable large employers that fail to offer affordable, minimum value coverage to full-time employees, or plans that skip required preventive care or impose prohibited dollar limits.
- Mental health parity. More restrictive copays, visit limits, prior authorization or network standards for mental health and substance use disorder benefits than for medical and surgical benefits.
How Do You Stay Compliant If You’re Subject to ERISA?
Establish proper plan documentation
- Keep a written plan document that names the plan sponsor and administrator, eligibility rules, benefits, funding, claims procedures and amendment and termination rules.
- Give each new participant an SPD within 90 days of coverage, and send a summary of material modifications when the plan changes.
- Distribute required notices on time, including SBCs, COBRA notices, the HIPAA privacy notice, the Women’s Health and Cancer Rights Act notice, Medicare Part D creditable coverage notices and CHIP notices.
- Use electronic delivery only when the Department of Labor’s conditions are met.
Implement proper administrative procedures
- Keep a compliance calendar for Form 5500, participant notices, plan document updates and annual reviews.
- Record fiduciary decisions: committee minutes, vendor selection criteria and fee reviews.
- Confirm your claims and appeals process meets Department of Labor deadlines and that denial letters include the required content.
Monitor service providers
- Vet TPAs, carriers, PBMs and consultants for qualifications, service and fees.
- Put each arrangement in writing: services, compensation, performance standards, fiduciary status and termination terms.
- Review performance and fees regularly and document what you find and what you did about it.
Conduct regular compliance audits
- Check that every required document exists and is current, notices went out and Form 5500 filings were made.
- When you find a gap, document it, correct it and consider the Department of Labor’s voluntary correction programs, such as the Delinquent Filer Voluntary Compliance Program for late Form 5500s.
- Bring in an ERISA attorney or compliance consultant for periodic outside reviews. Ethos Benefits helps employers with this through its ERISA compliance work.
ERISA Coverage for Health and Welfare Plans
This table assumes a private-sector employer. Government and non-electing church plans are exempt from every row.
| Plan type | Subject to ERISA? | Key requirements | Notable exceptions |
|---|---|---|---|
| Employer-sponsored group health insurance | Yes | Plan document, SPD, claims procedures, fiduciary standards, Form 5500 if required | Plans covering only owners and spouses |
| Self-funded health plans | Yes | Plan document, SPD, claims procedures, fiduciary standards, Form 5500 if required | Plans covering only owners and spouses |
| Dental insurance | Yes | Plan document, SPD, claims procedures | Voluntary plans meeting the safe harbor |
| Vision insurance | Yes | Plan document, SPD, claims procedures | Voluntary plans meeting the safe harbor |
| Prescription drug coverage | Yes | Plan document, SPD, claims procedures | When part of an exempt plan |
| Health FSAs | Yes | Plan document, SPD, claims procedures | Government and church employers |
| HRAs | Yes | Plan document, SPD, claims procedures | Individual policies bought through an ICHRA can fall outside ERISA |
| HSAs | Generally no | Not applicable | Covered if the employer restricts, endorses or controls the accounts beyond Code limits |
| Group life insurance | Yes | Plan document, SPD, claims procedures | Voluntary plans meeting the safe harbor |
| Disability insurance | Yes | Plan document, SPD, claims procedures | Plans maintained solely to meet state disability laws; voluntary plans meeting the safe harbor |
| Employee assistance programs (EAPs) | Usually yes | Plan document, SPD, claims procedures | EAPs offering only referrals |
| Wellness programs | Usually yes | Plan document, SPD, claims procedures | Programs that provide no medical care |
| Voluntary insurance plans | Depends | Full ERISA rules if covered | Exempt only if all four safe harbor conditions are met |
To compare covered and exempt plans side by side, see ERISA vs. non-ERISA plans.
